Published on December 6, 2007
RTF - FCC Model Overview: RTF - FCC Model Overview Presented by Bob Schoonmaker Overview: Overview General Overview Plant Investment Capital Costs Expense Development Costs to Universal Service General Overview: General Overview FCC Criteria General model structure General network design Cost density zones Inputs General cost development structure Industry reactions FCC Model Criteria: FCC Model Criteria 1. Least cost, most efficient, reasonable technology Built to current LEC wire center locations Loop shouldn’t impede advanced service (unloaded loops) Access line counts should equal LEC counts by wire center 2. Any network function must have an associated cost FCC Model Criteria (cont.): FCC Model Criteria (cont.) 3. Forward looking economic cost 4. Authorized federal (or state) rate of return 5. Depreciation rates within FCC ranges 6. Must reflect all business and residences within the region 7. Reasonable allocation of joint and common cost FCC Model Criteria (cont.): FCC Model Criteria (cont.) 8. Model, data, formulae, computations, software, and assumptions must be available to all parties for review and must be reasonable, verifiable, and outputs plausible 9. Critical engineering assumptions must be able to be examined and modified. FCC Model Criteria (cont.): FCC Model Criteria (cont.) 10. Support calculations must be calculated at least to the wire center level, and if possible to a lower level such as CBG or census block. General Model Structure: General Model Structure Objectives Identify cost associated with universal service Develop cost of all network elements Possible uses beyond USF Programming Loop portion - Turbo-Pascal Remainder - Excel worksheets General Model Structure-Customer Location: General Model Structure-Customer Location Geocoded location data - preferred by FCC, but no public source currently available “Road Surrogate” location data - Spread equidistant along roads by census block Business and residence locations - Using various databases Access line calculations - 1.2 lines/res. Adjustment to actual access lines - ARMIS study areas General Model Structure-Other General Data: General Model Structure-Other General Data Census block data - (1990 updated to 1995) Wire center boundaries - BLR data Association of census blocks to wire centers ARMIS financial data by study area General Model Structure-Cost Development: General Model Structure- Cost Development Network Investment Cost Loop Plant Switching Interoffice plant Support plant Capital Costs General Model Structure-Cost Development: General Model Structure- Cost Development Expenses Plant related Other USF portion of cost identified Calculation on a monthly per line basis State Study Area Wire Center General Network Design - Loop: General Network Design - Loop “Unloaded” loop - maximum copper - 18,000 ft. Digital loop carrier fed by fiber optics Built to current wire center locations Maximum cluster size - 1,800 lines Cost Density Zones: Cost Density Zones Nine cost density zones (area/line at max. value) 0-5 lines/sq. mile - 128 acres 5-100 lines/sq. mile - 6.4 acres 100-200 lines/sq. mile - 3.2 acres 200-650 lines/sq. mile - .98 acres 650-850 lines/sq. mile - .75 acres 850-2,550 lines/sq. mile - .25 acres 2,550-5,000 lines/sq. mile - .13 acres 5,000-10,000 lines/sq. mile - .06 acres Cost Density Zones-Costs: Cost Density Zones-Costs Cable Mix by type (aerial, buried, underground) Structure costs (also normal, soft rock, hard rock) Structure sharing percent Fill factors Manhole spacing Inputs: Inputs Total - 1,200 to 1,300 input values Geographic - soil type, water table, slope Cable - Separate material and installation costs by type of cable & zone Other Loop cost - interfaces, loop carrier Switching - Cost and usage factors Switch location information from LERG(?) Inputs - Cont.: Inputs - Cont. Interoffice - fiber terminal, SS7, fiber construction, usage factors General support - some costs, ratios Cost of capital Depreciation rates & factors Plant specific expense factors Other expense factors Industry Reactions - MCI Worldcom: Industry Reactions - MCI Worldcom MCI Worldcom - “Simulations show that the Commission’s Model is a blunt, inflexible instrument, incapable of achieving its stated goals in a rational manner.” Industry Reactions-US West: Industry Reactions-US West US West - “The Synthesis Model is so completely beyond salvage and the inputs the FCC proposes to use in that model are so utterly afield of reality, that US West has no choice but to withdraw all support for use of this forward-looking cost model.” Industry Reactions-Sprint: Industry Reactions-Sprint Sprint - “While Sprint wishes to acknowledge the diligent efforts of the FCC’s staff in the development of the proposed national input values, at the same time, Sprint must continue to express its grave concern that “one size does not fit all!”…Sprint believes that in attempting to justify one set of national inputs, what some casually dismiss as inefficiencies are actually unavoidable cost differences in company size as well as rural-versus-urban customer serving territories.” Industry Reactions-GTE: Industry Reactions-GTE GTE - “The FCC should not adopt any input values, including those proposed in the FNPRM, until it has finalized a correctly working cost model Platform. The Platform is still a work in progress. GTE has identified 20 additional flaws from its review of the model Platform that have yet to be addressed. All of these problems need to be fixed, and final decisions on inputs should be deferred until all such problems have been identified, solved, and the model Platform is stable.” Industry Reactions-Bell Atlantic: Industry Reactions-Bell Atlantic Bell Atlantic - “The proposed cost inputs in the FNPRM systematically understate actual forward-looking costs….These inaccurate inputs do nothing to overcome the fundamental shortcoming of the proxy model platform -- its reliance on a hypothetical network that no carrier has or will ever construct. As a result, the cost proxy model with the proposed inputs is still hopelessly inaccurate in identifying high cost areas.” Plant Investment: Plant Investment Feeder and Distribution Plant Switching Plant Interoffice and Signaling Plant Support Plant Feeder and Distribution Plant: Feeder and Distribution Plant Clustering algorithms Distribution cable SAI investment Feeder cable Clustering Algorithm: Clustering Algorithm Developed by FCC staff Mathematically determines number and location of DLCs needed 18,000 ft. copper maximum Distribution Cable: Distribution Cable Cable from customer location to switch or DLC Copper cable - gauge determined by distance - 24 gauge over 12,000 ft. Type of construction (aerial, buried, underground) based on density zone assumptions SAI/DLC Investment: SAI/DLC Investment Interface point between feeder and distribution cable Digital Loop Carrier (DLC) used where overall length greater than 18,000 ft. Serving Area Interface (SAI) used where loop length is less than 18,000 ft. Feeder Cable: Feeder Cable Cable from switch to SAI or DLC Primarily fiber cable Feeder to clusters close to switch may be copper or fiber Model determines most economic type of cable Switching Plant: Switching Plant Office locations - existing LEC wire centers Type of switch - host, remote, stand-alone Basic cost development Fixed cost per switch Cost per line Other factors Interoffice and Signaling Plant: Interoffice and Signaling Plant SONET ring based plant to other offices and tandem switch SS7 signaling network and STP (signal transfer point) Usage factors determine number of trunks Generates significant portion of USF cost Support Plant: Support Plant Land and building cost per COE Other support costs - based on ratio to investment Land and building-administrative Vehicles and work equipment Furniture, office equipment General purpose computers Capital Cost: Capital Cost Cost of Capital - 11.25% federal rate of return Depreciation Depreciation Expense: Depreciation Expense Based on average of FCC approved rates Major investment lives COE switching - 16.17 years COE transmission - 10.24 years Poles - 30.25 years Aerial cable-copper - 20.61 years Buried cable-copper - 21.57 years Aerial cable-fiber - 26.14 years Buried cable-fiber - 25.91 years Expense Development: Expense Development Plant specific Expense Network operations Expense Customer Operations Expense Corporate Operations Expense Plant Specific Expense: Plant Specific Expense Directly associated with maintenance of plant investment Based on ratio of expense to investment Network Operations Expense: Network Operations Expense Power, network testing Network administration Plant operations administration Engineering planning Based on amount per line Customer & Corporate Operations Expenses: Customer & Corporate Operations Expenses Marketing - mostly excluded Input on amount/line basis Significant adjustments for non-USF activities Cost assignment to USF: Cost assignment to USF Loop Cost 100% to USF Switching Cost Port Local Usage Interoffice and Signaling Cost Summary of Results: Summary of Results Summary cost for 49 IL companies-HAI Loop $47.48 63.2% Port $ 3.10 4.1% Local Usage $ 4.61 6.1% Signaling $ 1.17 1.6% Transport $16.97 22.6% Billing $ 1.45 1.9% LNP $ 0.30 0.4% Total $75.08 100.0%
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